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Ruling To Determine Future of Credit Card Swipe Fees in Canada

UPDATE: The Competition Tribunal has rejected the complaint against MasterCard and Visa, and have upheld their No Surcharge, Honour All Cards and No Discrimination Rules. This means that merchants who accept Visa and MasterCard cards must accept all forms of those cards, and pay any additional processing fees, which are higher for premium cards, like reward or point offerings. While the tribunal has stated the reasons for its ruling are confidential, the resulting actions of retailers remains to be seen.

The Canadian Federation of Independent Business has expressed their disappointment in the ruling, stating that retailers should be granted the same powers as their American counterparts. “We are particularly disappointed by the decision as US small firms recently gained the ability to surcharge through an out-of-court settlement with Visa and MasterCard,” said CIBC President Dan Kelly. “Given Visa and MasterCard agreed to allow surcharging in the US, we expect that Canadian merchants should be allowed the same powers.”

The ruling targets the practices of credit card giants MasterCard and Visa, who impose these fees on merchants when processing credit card payments made with high reward or point-earning credit cards. While the fees are put in place to cover the cost of paying those rewards out to the consumer, they also force retailers to incur an additional cost when accepting these methods of payment, known as “swipe charges”. Not only are these charges especially daunting for small businesses, they have also forced some merchants to increase the costs of their goods and services – ultimately hitting consumers in the pocketbook.

A Long Standing Issue

The complaint was first registered with the Tribunal in 2012 by Canada’s Commissioner of Competition, but this has long been a sore spot between retailers and the credit card companies. Currently, merchants have no choice but to accept all forms of Visa or MasterCard, which charge fees ranging from 1.54 per cent to up to 2.65 per cent for premium rewards cards – some of the highest fees on the planet. As well, there are no restrictions on how high or frequently these fees can be increased by the credit card companies.

Canadians Pay More For Their Plastic

In 2009, the U.S. Merchants Payments Coalition ran a study that found the U.S. to have the highest credit card swipe fees in the world – and Canada as a close second, costing retailers an estimated $4.5 billion in processing costs. The study found that on average Canadian merchants pay 1.5 per cent of the total transaction in fees, compared to just 0.5 per cent in Australia, and 0.3 per cent in some EU countries, both of which have established caps on the fees credit card companies can charge.

Does This Mean I Can’t Use My Rewards Credit Card?

Theoretically, should the ruling pass, those with swanky high-level rewards cards could find themselves paying more at the till, or turned away altogether – but that’s a scenario retailers want to avoid. After all, refusing possible transactions is hardly a smart business model, and retailers are keen to keep their customers happy.

While the Canadian Bankers Association defends the current fee structure, citing the potential effect on customer service, putting a cap on fee hikes could effectively put the control back in the hands of merchants, who then may stop having to resort to price hikes on their products, which in turn affect all consumers.

What do you think about merchant swipe fees? Are they totally unfair to retailers – or are credit card consumers getting a raw deal? Tell us what you think in a comment, or visit us on Facebook and Twitter!